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A sequential dynamic pricing model and its applications

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  • Kyle Y. Lin

Abstract

Consider a sequential dynamic pricing model where a seller sells a given stock to a random number of customers. Arriving one at a time, each customer will purchase one item if the product price is lower than her personal reservation price. The seller's objective is to post a potentially different price for each customer in order to maximize the expected total revenue. We formulate the seller's problem as a stochastic dynamic programming model, and develop an algorithm to compute the optimal policy. We then apply the results from this sequential dynamic pricing model to the case where customers arrive according to a continuous‐time point process. In particular, we derive tight bounds for the optimal expected revenue, and develop an asymptotically optimal heuristic policy. © 2004 Wiley Periodicals, Inc. Naval Research Logistics, 2004.

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  • Kyle Y. Lin, 2004. "A sequential dynamic pricing model and its applications," Naval Research Logistics (NRL), John Wiley & Sons, vol. 51(4), pages 501-521, June.
    • Handle: RePEc:wly:navres:v:51:y:2004:i:4:p:501-521
    DOI: 10.1002/nav.20015
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    References listed on IDEAS

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